Jean-Claude Juncker, the president of the European Commission, said the statute was being introduced to protect European firms.

“It’s the duty of the EU to protect European business and that applies in particular to small and medium-sized enterprises,” he told a news conference following a summit of EU leaders in Bulgaria on Thursday.

He added that the legislation was designed to deal with “extra-territorial” sanctions when they have an impact on the EU.

Why is the US imposing sanctions on Iran?

Media captionIran nuclear deal: Trump announces US pull-out

President Donald Trump pulled the US out of the Iran nuclear deal earlier this month and pledged to ramp up pressure on the country.

The agreement was signed by six world powers, alongside Iran, to curbed Iranian nuclear activities in return for the lifting of UN, US and EU sanctions.

But Mr Trump has denounced the “horrible” deal, and now Washington is re-imposing the strict sanctions.